Royal Bank of Canada reported strong fourth-quarter earnings on Wednesday.Maria Collins/The Globe and Mail
Royal Bank of Canada RY-T posted a surge in fourth-quarter earnings on a boost in capital markets and wealth management activity as the lender raised its profitability target.
Profit at Canada’s largest lender jumped 29 per cent year-over-year to $5.4-billion, or $3.76 per share, in the three months ended Oct. 31. RBC also raised its target on return on equity – a metric that measures profitability – to 17 per cent or more after surpassing the 16-per-cent goal the bank set at its investor day in March.
RBC chief executive officer Dave McKay said the bank is maintaining a modest goal as trade uncertainty lingers ahead of negotiations over the Canada-United States-Mexico Agreement (CUSMA).
“Our ROE has already differentiated itself significantly from our peers, given that many aspire to get to 15 per cent,” Mr. McKay said on a conference call with analysts.
“You can also detect a little bit of conservatism from us in that we still haven’t resolved CUSMA, we still haven’t seen the economy normalize yet, we are running fairly elevated markets right now, and therefore, I think it’s just a prudent approach given there are some significant uncertainties that could affect the economy going forward that we just want to see play out a little bit longer.”
RBC was the second major Canadian bank to report earnings for the fiscal fourth quarter. National Bank of Canada NA-T also reported results on Wednesday.
On Tuesday, Bank of Nova Scotia BNS-T posted higher profits that beat analysts’ estimates. Toronto-Dominion Bank TD-T, Bank of Montreal BMO-T and Canadian Imperial Bank of Commerce CM-T will wrap up earnings week on Thursday.
Adjusted to exclude certain items, the bank said it earned $3.85 per share, beating the $3.55 per share analysts expected, according to S&P Capital IQ. The bank raised its quarterly dividend by 10 cents to $1.64 per share.
Capital markets profit climbed 45 per cent to $1.4-billion, driven by higher revenue in global markets and corporate and investment banking, with equities trading and merger and acquisition activity climbing across all regions. The U.S. division contributes more than half of the business’ revenue.
The wealth management division generated $1.3-billion in profit, up 33 per cent on higher fee-based client assets and sales.
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Profit from personal banking was $1.9-billion, surging 20 per cent from a year earlier, driven by higher net interest income reflecting higher spreads and volume growth in the Canadian business.
Commercial banking net income rose 5 per cent to $810-million as loan and deposit balances grew 5 per cent and 3 per cent respectively. That growth is driven by “resilient sectors” including agriculture, healthcare and the public sector, even as tariffs stunted demand from manufacturing and logistics companies, according to RBC chief financial officer Katherine Gibson.
In the quarter, RBC set aside $1-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That included $984-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.
In the same quarter last year, RBC set aside $640-million in provisions.